Unemployment Insurance: The Path Back to Work

Comments for the Record

United States Senate Committee on Finance

Unemployment Insurance: The Path Back to Work

Tuesday, November 8, 2011, 10:00 AM

215 Dirksen Senate Office Building

By Michael Bindner

Center for Fiscal Equity

Chairman Baucus and Ranking Member Hatch, thank you for the opportunity to address this topic, which contains just a hint of irony. More ironic is the fact that, because the Center for Fiscal Equity does not benefit any particular industry, it is unfunded. Our ability to comment on these and other hearings in the past several months is only possible due to my ability to draw Unemployment Insurance. I have been working very hard, but without pay.

There are those on the conservative side of the intelligentsia who will likely offer the opinion that Unemployment Insurance allows people to avoid going back to paid work and that continuing to extend benefits simply delays the day when they must seriously look for the first available job.

These are answered by advocates for continuing to pay benefits, who defend the freedom the program offers to not seek the first available job, so that workers are more likely to find a job that is a match to their skill sets. Additionally, when more qualified workers can be more selective, less qualified workers are able to take the lesser skilled jobs that others are able to take a pass on because they can survive on benefits. I tend to agree with this analysis.

Most economists will also point out that payment of benefits allows those laid off to continue to spend at least some money, stopping a bad economy from getting much worse – especially when there are no jobs to be had by anyone, skilled or unskilled. This is likely the case with the current economy, at least until recently.

An issue undoubtedly facing this committee is the funding of extended unemployment benefits, as well as the possibility of benefits to the 99ers who do not qualify for extended aid and must now rely on family members, the ability to retire early or other social welfare benefits, such as the Supplemental Nutrition Assistance Program, which serves as the aid of last resort. Sadly, in an effort to give welfare reform teeth, SNAP levels are way below what is required for an individual to eat for a month.

Traditionally, extended benefits were financed without offsets. This is entirely appropriate, because UI is funded by a separate tax and raising this tax generally during an economic downturn would likely make the downturn worse. Cuts to items outside the UI trust fund are thus inappropriate and should not be suggested or required in our opinion. If funding cannot be debt financed, it must come from some kind of revenue increase. It is disappointing that the defenders of the program in Congress have not, to date, made this point and called their bluff.

It is troubling that while many families are still struggling under joblessness, uncertainty as to their job security or prospect for higher incomes and in many cases mortgages that are greater than their homes are worth, many of our largest companies are flush with cash and are quite unwilling to take the risk of “paying forward” the recovery by hiring more staff or giving existing staff substantial wage increases. What is even more troubling is that it is likely that many of these firms have these record cash accumulations as the result of austerity measures. While some firms most likely conducted layoffs in order to simply survive, others did so to maintain or increase profitability through cutbacks, outsourcing or automation – or simply limiting wage increases. Shareholders and executives are often rewarded for these actions, even though such actions on the whole damage potential revenue by limiting the customer base.

Henry Ford increased the wages of his workforce so that they could afford his car and was rewarded with profitability. If more firms were as smart as Mr. Ford, we would be out of this time of austerity.

The Government is not without options in this regard and now is the time to employ one of them. While companies that were struggling to get by, or who have closed, cannot afford to pay an unemployment surtax to fund their employees who require extended unemployment, there are those companies who certainly can. Therefore, in order to fund the next round of extended unemployment benefits, such a surtax should be levied and it should be high enough to cover not only those employees who have been laid off from that firm, they should be high enough to cover all such beneficiaries. Enacting such a levy will provide companies who are sitting on large cash balances with a strong incentive to rehire staff, so Unemployment Insurance really would be the way back to work.

The secondary effects of this are also significant. Newly rehired workers will spend more while those who have not been rehired will at least be able to maintain current spending. In both cases, the economy will be stimulated enough so that many firms that were struggling will have higher sales, as well as those firms which rehired former employees to avoid the higher tax. This virtuous cycle will continue to accelerate until the economy has righted itself.

There are those who would criticize this proposal as penalizing the profitable. They have no leg to stand on when these profits came at the cost of human suffering. Anyone who makes such an argument should be ashamed of themselves and deserve public scorn.

Thank you for the opportunity to address the committee. We are, of course, available for direct testimony or to answer questions by members and staff.